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Well, since standard definition commercial DVDs are the only ones that will play on your MBP's optical drive, and they are *standard definition*, i.e. around 720 x 480, they need to be upscaled to play full screen on your MBP, thus the fuzziness. Your 5 megapixel resolution still camera is something like 2600 x 1900, so it's close to your display resolution (greater, actually) and thus is "crisp". In DVD Player, if you choose Video menu > Normal size, that's the actual native resolution of the DVD.
Only way to not upscale is to use an external Blu Ray drive and high def DVDs (as mentioned above, the internal optical drive will
not play high-def DVDs).
Hope this helps...